Private equity firms invest in businesses that aren’t publicly traded and then work to expand or turn them around. Private equity firms raise capital through an investment fund with a defined structure, distribution system and then invest it in the companies they wish to invest in. The investors in the fund are referred to as Limited Partners, and the private equity company is the General Partner, responsible for buying, managing, and selling the target companies to maximize the returns on the fund.
PE firms can be accused of being ruthless and pursuing profits at any cost, but they are armed with extensive management experience that allows them to enhance the value of portfolio companies by improving the operations and other functions. They can, for instance help guide a new executive team by providing the best practices for financial and corporate strategy and assist in the next implementation of streamlined accounting, IT and procurement systems to reduce costs. They can also increase revenue and improve operational efficiency which can help increase the value of their assets.
Private equity funds require millions of dollars to invest and they can take years to sell a business in a profit. This makes the industry highly liquid.
Working at a private equity firm typically requires prior experience in finance or banking. Associate entry-level associates are mostly responsible for due diligence and finance, while junior and senior associates are responsible for the relationship between the firm’s clients and the firm. Compensation for these roles has been on a rising trend in recent years.
Leave a Reply